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Final

ECON 104 Practice Final Exam.pdf

38 Pages
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Department
Economics
Course Code
ECN 104
Professor
Mikhail Gurvits

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Name: ______________________ Class: _________________ Date: _________ ID: A
1
Practice Final Exam Questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has
average revenue of $10, and its average total cost is $8. What follows?
a.
The firm's average total cost curve intersects the marginal cost curve at an output
level of more than 100 units.
b.
The firm's average variable cost curve intersects the marginal cost curve at an output
level of more than 100 units.
c.
The firm's loss is $200.
d.
The firm's profit is $200.
____
2.
In monopolistically competitive markets, what does the property of free entry and exit suggest?
a.
All firms earn zero economic profits in the long run.
b.
Some firms will be forced to incur economic losses in the long run.
c.
The market structure will eventually be characterized by perfect competition in the
long run.
d.
Some firms will be able to earn economic profits in the long run.
____
3.
George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on
TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $3000. If they both
advertise on radio, each will earn a profit of $5000. If neither advertises at all, each will earn a profit of
$10 000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will
earn $4000 and the other will earn $2000. If one advertises on TV and the other does not advertise, then
the one advertising on TV will earn $8000 and the other will earn $5000. If one advertises on radio and
the other does not advertise, then the one advertising on radio will earn $9000 and the other will earn
$6000. If both follow their dominant strategy, what will George do and how much will he earn?
a.
advertise on TV and earn $3000
b.
advertise on radio and earn $5000
c.
advertise on TV and earn $8000
d.
not advertise and earn $10 000
Name: ______________________ ID: A
2
Figure 14-8
____
4.
Refer to Figure 14-8. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing
firm in a competitive market, what does the figure in panel (b) most likely reflect?
a.
perfectly inelastic long-run market supply
b.
the product of the individual supply curves for all firms in the market
c.
the idea that free entry and exit of firms in the market lead to only one market price
in the long run
d.
the fact that zero profits cannot be sustained in the long run
____
5.
A demand curve reflects each of the following EXCEPT what?
a.
the ability of buyers to obtain the quantity they desire
b.
the highest price buyers are willing to pay for each quantity
c.
the willingness to pay of all buyers in the market
d.
the value each buyer in the market places on the good
____
6.
Assume that a tax is levied on a good and the government uses the funds to build statues of the Premiers
of each of the provinces and territories. In this case, which of the following would NOT occur?
a.
a decrease in producer surplus to producers of the taxed good
b.
a deadweight loss larger than the loss in both consumer and producer surplus
c.
a decrease in consumer surplus to consumers of the taxed good
d.
a probable decrease in the welfare of society that exceeds the deadweight loss from
the tax
Name: ______________________ ID: A
3
Figure 8-5
____
7.
Refer to Figure 8-5. If the tax is imposed on the buyer, what would producer surplus be?
a.
$600
b.
$900
c.
$1200
d.
$1500
____
8.
Refer to Figure 8-5. Without the tax, what would consumer surplus in this market be?
a.
$1500
b.
$2400
c.
$3000
d.
$3600

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Description
Name: ______________________ Class: _________________ Date: _________ ID: A Practice Final Exam Questions Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, and its average total cost is $8. What follows? a. The firm's average total cost curve intersects the marginal cost curve at an output level of more than 100 units. b. The firm's average variable cost curve intersects the marginal cost curve at an output level of more than 100 units. c. The firm's loss is $200. d. The firm's profit is $200. ____ 2. In monopolistically competitive markets, what does the property of free entry and exit suggest? a. All firms earn zero economic profits in the long run. b. Some firms will be forced to incur economic losses in the long run. c. The market structure will eventually be characterized by perfect competition in the long run. d. Some firms will be able to earn economic profits in the long run. ____ 3. George and Jerry are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $3000. If they both advertise on radio, each will earn a profit of $5000. If neither advertises at all, each will earn a profit of $10 000. If one advertises on TV and the other advertises on radio, then the one advertising on TV will earn $4000 and the other will earn $2000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $8000 and the other will earn $5000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $9000 and the other will earn $6000. If both follow their dominant strategy, what will George do and how much will he earn? a. advertise on TV and earn $3000 b. advertise on radio and earn $5000 c. advertise on TV and earn $8000 d. not advertise and earn $10 000 1 Name: ______________________ ID: A Figure 14-8 ____ 4. Refer to Figure 14-8. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, what does the figure in panel (b) most likely reflect? a. perfectly inelastic long-run market supply b. the product of the individual supply curves for all firms in the market c. the idea that free entry and exit of firms in the market lead to only one market price in the long run d. the fact that zero profits cannot be sustained in the long run ____ 5. A demand curve reflects each of the following EXCEPT what? a. the ability of buyers to obtain the quantity they desire b. the highest price buyers are willing to pay for each quantity c. the willingness to pay of all buyers in the market d. the value each buyer in the market places on the good ____ 6. Assume that a tax is levied on a good and the government uses the funds to build statues of the Premiers of each of the provinces and territories. In this case, which of the following would NOT occur? a. a decrease in producer surplus to producers of the taxed good b. a deadweight loss larger than the loss in both consumer and producer surplus c. a decrease in consumer surplus to consumers of the taxed good d. a probable decrease in the welfare of society that exceeds the deadweight loss from the tax 2 Name: ______________________ ID: A Figure 8-5 ____ 7. Refer to Figure 8-5. If the tax is imposed on the buyer, what would producer surplus be? a. $600 b. $900 c. $1200 d. $1500 ____ 8. Refer to Figure 8-5. Without the tax, what would consumer surplus in this market be? a. $1500 b. $2400 c. $3000 d. $3600 3 Name: ______________________ ID: A Figure 7-7 ____ 9. Refer to Figure 7-7. If this market were currently at a quantity of 40, what would we know? a. Cost to sellers is equal to the value to buyers. b. The value to buyers is greater than the cost to sellers. c. Producer surplus would be greater than consumer surplus. d. The cost to sellers is greater than the value to buyers. ____ 10. Refer to Figure 7-7. If the price decreases from $22 to $16, by how much would consumer surplus increase? a. $120 b. $360 c. $480 d. $600 4 Name: ______________________ ID: A The figure below depicts the demand, marginal revenue, and marginal cost curves of a profit-maximizing monopolist. Figure 15-5 ____ 11. Refer to Figure 15-5. Which of the following areas represents the deadweight loss due to monopoly pricing? a. triangle bde b. triangle bge c. rectangle acdb d. rectangle cfgd ____ 12. A monopoly firm can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201 units of output for $35.80 per unit. What is the marginal revenue of the 201 unit of output? a. –$35.80 b. –$4.20 c. $4.20 d. $35.80 ____ 13. In order to sell more of its product, what must a monopolist do? a. It must sell in international markets. b. It must keep its price constant. c. It must lower its price. d. It must sell to the government. 5 Name: ______________________ ID: A Table 15-1 Total Average Marginal Quantity Price Revenue Revenue Revenue 1 $35 $35 2 64 $32 $29 3 29 4 17 5 23 11 6 120 7 17 –1 8 –7 9 99 11 –13 ____ 14. Refer to Table 15-1. What is the marginal revenue for the monopolist for the sixth unit sold? a. $3 b. $5 c. $8 d. $11 ____ 15. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell? a. 4 b. 5 c. 6 d. 7 6 Name: ______________________ ID: A Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. Table 13-3 Output (instruction Averag Average al Fixed Variabl Total Average e Total Margina modules per Costs e Cost Fixed Variabl Cost l month) Costs Cost e Cost Cost 0 $1080 1 1080 $ 400 $ 1480 $400 2 $965 450 3 1350 2430 4 1900 $475 5 2500 $216 6 4280 700 7 4100 8 5400 135 9 7300 10 10 880 980 ____ 16. Refer to Table 13-3. What is the average fixed cost for the month if nine instructional modules are produced? a. $108 b. $120 c. $150 d. $175 ____ 17. Refer to Table 13-3. What is the marginal cost of creating the tenth instructional module in a given month? a. $900 b. $1250 c. $2500 d. $3060 ____ 18. Refer to Table 13-3. What is the average variable cost for the month if six instructional modules are produced? a. $180 b. $533.33 c. $700 d. $713.33 7 Name: ______________________ ID: A ____ 19. What signals the entry and exit decisions of firms in a competitive market? a. profits and losses b. high or low demand for a firm's product c. high capital costs d. low capital costs Assume a certain firm is producing 1000 units of output (so Q = 1000). At Q = 1000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. ____ 20. Refer to Scenario 14-2. At Q = 1000, what is the firm's profit? a. –$200 b. $1000 c. $3000 d. $4000 ____ 21. Which of the following is NOT correct? a. Trade is based on absolute advantage. b. Trade allows individuals to consume outside of their individual production possibilities curve. c. Trade allows for specialization. d. Trade is good for nations. ____ 22. What does producer surplus measure? a. the well-being of sellers b. the well-being of society as a whole c. the well-being of buyers and sellers d. the loss to sellers 8 Name: ______________________ ID: A Figure 7-1 ____ 23. Refer to Figure 7-1. What does area C represent? a. an increase in producer surplus when quantity sold increases from Q to Q 2 1 b. the decrease in consumer surplus that results from a downward-sloping demand curve c. a decrease in consumer surplus to each consumer in the market d. consumer surplus to new consumers who enter the market when the price falls from P2to P 1 ____ 24. Anna, Bill, and Charles are competitors in a local market, and each is trying to decide if it is worthwhile to advertise. If all of them advertise, each will earn a profit of $5000. If none of them advertise, each will earn a profit of $8000. If only one of them advertises, the one who advertises will earn a profit of $10 000 and the other two will each earn $2000. If two of them advertise, those two will each earn a profit of $6000 and the other one will earn $1000. If all three follow their dominant strategy, what will Anna do and how much will she earn? a. advertise and earn $5000 b. advertise and earn $6000 c. not advertise and earn $8000 d. advertise and earn $10 000 ____ 25. A competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, what can we be certain will happen in the short-run? a. At least some firms will exit the industry. b. Price will fall below marginal cost. c. Price will fall below average total cost. d. At least some firms will shut down. ____ 26. What is market failure? a. the inability of a market to establish an equilibrium price b. the inability of buyers to interact harmoniously with sellers in the market c. the inability of some unregulated markets to allocate resources efficiently d. the inability of buyers to place a value on the good or service 9 Name: ______________________ ID: A ____ 27. Which of the following statements is accurate for most markets? a. As the tax rate rises, tax revenue rises for a while, but eventually begins to fall; deadweight loss continually rises. b. As the tax rate increases, tax revenue continually rises and deadweight loss continually falls. c. As the tax rate rises, tax revenue rises for a while, but eventually begins to fall; deadweight loss falls for a while, but begins to rise as tax revenue falls. d. As the tax rate rises, tax revenue rises for a while, but eventually begins to fall; deadweight loss rises but also begins to fall as tax revenue falls. ____ 28. What is generally the case for a monopolist's average revenue? a. It is equal to the price of its product. b. It is less than the price of its product. c. It is greater than the price of its product. d. It is equal to marginal revenue. ____ 29. Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs? a. the cost of hotdog buns b. wages paid to workers that sell hotdogs c. the cost of mustard d. the cost of bookkeeping services ____ 30. When technology improves in the ice cream industry, what happens to consumer surplus? a. It increases, then decreases. b. It increases. c. It does not change, since technology affects suppliers and not consumers. d. It decreases. 10 Name: ______________________ ID: A The figure below depicts the demand, marginal revenue, and marginal cost curves of a profit-maximizing monopolist. Figure 15-7 ____ 31. Refer to Figure 15-7. If the monopoly firm is NOT allowed to price discriminate, what is consumer surplus? a. $0 b. $500 c. $1000 d. $2000 ____ 32. What does producer surplus equal? a. Amount received by sellers – Costs of sellers b. Value to buyers – Amount paid by buyers c. Value to buyers – Costs of sellers d. Value to buyers – Amount paid by buyers + Amount received by sellers – Costs of sellers ____ 33. Which of the following is the most correct statement about tax burdens? a. A tax burden falls most heavily on the side of the market that is inelastic. b. A tax burden falls most heavily on the side of the market that is closer to unit elastic. c. A tax burden falls most heavily on the side of the market that is elastic. d. A tax burden is distributed independently of relative elasticities of supply and demand. ____ 34. Alma, Bob, and Carlos are competitors in a local market, and each is trying to decide if it is worthwhile to advertise. If all of them advertise, each will earn a profit of $2000. If none of them advertise, each will earn a profit of $8000. If only one of them advertises, the one who advertises will earn a profit of $6000 and the other two will each earn $5000. If two of them advertise, those two will each earn a profit of $4000 and the other one will earn $3000. If all three follow their dominant strategy, what will Alma do and how much will she earn? a. advertise and earn $2000 b. advertise and earn $4000 c. not advertise and earn $5000 d. not advertise and earn $8000 11 Name: ______________________ ID: A Figure 8-2 ____ 35. Refer to Figure 8-2. What is the per unit burden of the tax on the sellers? a. P3– P 1 b. P3– P 2 c. P2– P 1 d. Q2– Q 1 ____ 36. Refer to Figure 8-2. What area represents the amount of deadweight loss associated with the tax? a. P3ACP 1 b. ABC c. P2DAP 3 d. P1CDP 2 ____ 37. Refer to Figure 8-2. What is the per unit burden of the tax on buyers? a. P3– P 1 b. P3– P 2 c. P2– P 1 d. Q2– Q 1 12 Name: ______________________ ID: A Table 3-1 Labour Hours Needed to Make 1 Kg of: Kilograms produced in 40 hours: Meat Potatoes Meat Potatoes Farmer 8 2 5 20 Rancher 4 5 10 8 ____ 38. Refer to Table 3-1. Which of the following is correct? a. The Rancher has an absolute advantage in both goods, and the Rancher has a comparative advantage in meat. b. The Rancher has an absolute advantage in both goods, and the Rancher has a comparative advantage in potatoes. c. The Rancher has an absolute advantage in meat, and the Rancher has a comparative advantage in neither good. d. The Rancher has an absolute advantage in meat, and the Rancher has a comparative advantage in meat. Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from provinces to recover the health-care related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illness). Provincial prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the provinces. Table 16-3 Firm A Concede that Argue that there is no cigarette smoke evidence that smoke causes lung cancer causes cancer Firm B Concede that cigarette smoke Firm A loss = –$20 Firm A loss = –$50 causes lung cancer Firm B loss = –$15 Firm B loss = –$5 Argue that there is no evidence that Firm A loss = –$5 Firm A loss = –$10 smoke causes cancer Firm B loss = –$50 Firm B loss = –$10 ____ 39. Refer to Table 16-3. Pursuing its own best interests, when will Firm B concede that cigarette smoke causes lung cancer? a. only if Firm A concedes that cigarette smoke causes lung cancer b. regardless of whether Firm A concedes that cigarette smoke causes lung cancer c. only if Firm A does not concede that cigarette smoke causes lung cancer d. under no circumstances 13 Name: ______________________ ID: A Figure 8-4 ____ 40. Refer to Figure 8-4. Which area represents consumer surplus after the tax is levied on the consumer? a. A b. A + B c. A + B + C d. D + E + F Figure 15-1 ____ 41. Refer to Figure 15-1. In view of what is known about the relationship between average total cost and marginal cost, what do we know about the marginal cost curve for this firm? a. It does not exist. b. It must lie entirely above the average total cost curve. c. It must lie entirely below the average total cost curve. d. It must be upward sloping. 14 Name: ______________________ ID: A ____ 42. Susan quit her job as a teacher, which paid her $36 000 per year, in order to start her own catering business. She spent $12 000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12 000 from her bank at 10 percent interest per year, which she also spent on equipment. For the past several months she has spent $1000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3500 in monthly revenue. What should Susan do in the short run and the long run? a. In the short run, Susan should shut down her business and in the long run she should exit the industry. b. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium. c. In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. A monopolistically competitive firm faces the following demand curve for its product: Table 16-1 Price ($) 10 9 8 7 6 5 4 3 2 1 Quantity 2 4 6 9 10 12 14 16 18 20 ____ 43. Refer to Table 16-1. The firm has total fixed costs of $20 and a constant marginal cost of $2 per unit. What will the firm do? a. It will produce 9 units; firms will enter the market in the long run. b. It will produce 10 units; firms will enter the market in the long run. c. It will produce 10 units; firms will exit the market in the long run. d. It will produce 12 units; firms will enter the market in the long run. ____ 44. Refer to Table 16-1. Assume that there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to "collude" on price and quantity of premium digital channel subscriptions to sell. How many premium digital channel cable TV subscriptions will be collectively sold (by both firms) when this market reaches a Nash equilibrium? a. 3000 b. 6000 c. 9000 d. 12 000 15 Name: ______________________ ID: A Figure 13-8 ____ 45. Refer to Figure 13-8. What do the three average total cost curves on the diagram correspond to? a. three different products b. three different firms c. three different time horizons d. three different factory sizes ____ 46. Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. In this case, DeBeers, the large diamond company, has which of the following attributes? a. less incentive to advertise than it would otherwise have b. less market power than it would otherwise have c. higher profits than it would otherwise have d. more control over the price of diamonds than it would otherwise have ____ 47. In a situation of long-run equilibrium, which of the following statements applies? a. A perfectly competitive firm operates at excess capacity. b. nNeither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost. c. A monopolistically competitive firm operates at an inefficient scale. d. A monopolistically competitive firm operates at its efficient scale. ____ 48. When do economies of scale occur? a. when long-run average total costs fall as output increases b. when average fixed costs are constant c. when average fixed costs are falling d. when long-run average total costs rise as output increases 16 Name: ______________________ ID: A ____ 49. The widget industry has three types of firms. The cost structure for each type is as follows:
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